Evaluating the effects of blacklisting on residential property prices in Hong Kong

Purpose – The purpose of this paper is to empirically examine whether public knowledge of poor conditions of multistorey residential buildings affected the sale prices of these properties based on an analysis of panel data in Hong Kong. Design/methodology/approach – Previous studies suggested that physical conditions of residential properties, particularly those concerning communal areas and services, might not be fully priced by the market because of the problem of information asymmetry. Therefore, it was envisaged that additional information pumped into the housing market could alter the price gradient between highquality and lowquality properties. In November 2000, the Hong Kong Government publicly announced a list of poorlyperforming buildings, and this study aims to examine whether the blacklisting exercise brought about negative impacts on the sale prices of the affected properties. Hedonic price analysis was conducted on a set of panel data which consists of property transactions in both blacklisted and nonblacklisted buildings. Findings – The analysis results showed that properties in blacklisted buildings were not transacted at a discount, compared with those in nonblacklisted buildings before the blacklisting exercise. Also, the release of public information on the blacklist did not create a relative diminution of the property prices of the blacklisted buildings. Research limitations/implications – Thin property transactions in derelict buildings limited the number of observations for running the regression analysis. Practical implications – The piecemeal blacklisting exercise could not create price differential in the housing market, and thus it was not possible for the Hong Kong Government to lure homeowners to invest in their properties by market forces. The government should consider the implementation of a territorywide building classification scheme or other alternatives to solve the problems of building disrepair. Originality/value – This study is the first attempt to empirically investigate the value diminution effects of the government's blacklisting against dilapidation buildings.